BSkyB Confirms Pay TV Talks With 21st Century Fox

By Dow Jones Business News, 
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BSkyB Confirms Pay-TV Talks With 21st Century Fox


British Sky Broadcasting Group PLC said Monday that it had started preliminary discussions with 21st Century Fox over a multibillion-dollar acquisition of its pay-TV assets in Germany and Italy.

In the possible reshuffle of media mogul Rupert Murdoch's broadcasting business in Europe, the U.K. company would be taking part in the recent accelerated consolidation of Europe's cable, television and telecom sectors. Industry executives are looking for cross-border heft in buying rights to show sports and entertainment, and in developing content of their own.

The deal would involve the British company buying 21st Century Fox's 57% stake in Sky Deutschland AG, an investment valued at about EUR3.2 billion ($4.4 billion) based on the company's closing share price Friday. BSkyB would then launch a mandatory takeover offer for the rest.

BSkyB, which itself has a market capitalization of around GBP13.6 billion ($22.9 billion), said the mandatory offer would be made without a premium. Sky Deutschland shares nevertheless jumped 9.9% in Frankfurt Monday.

The British company would also acquire Sky Italia, a major sports broadcaster in Italy, which is wholly owned by 21st Century Fox.

BSkyB itself is 39%-owned by 21st Century Fox, which until mid-2013 was part of the same company as Wall Street Journal parent News Corp. The original News Corp in 2011 abandoned a planned bid for the rest of BSkyB amid a furor over reporting practices at one of News Corp'sU.K. newspapers.

The combined European broadcasting group would have around 20 million subscribers, adding Sky Italia's five million and Sky Deutschland's 3.7 million to BSkyB's 10.5 million television customers, according to the companies' websites.

"These discussions haven't progressed beyond a preliminary stage, no agreement has been reached on terms, value or transaction structure and there is no certainty that a transaction will occur," BSkyB said. It was unclear whether the talks were continuing.

A separate statement from 21st Century Fox confirmed that talks had been held. The company said that "over the years we've had numerous internal discussions regarding the organizational and ownership structure of the European Sky-branded satellite platform. From time to time these conversations have included BSkyB," adding that "no agreement between the parties has ever been reached."

Sky Deutschland had no comment.

Odey Asset Management LLP--the second-largest holder of Sky Deutschland shares, with an 8% stake--reacted negatively to the proposal Monday. The firm said the lack of a premium for minority holders "significantly understates the value of the company."

Tough antitrust scrutiny in the U.K. and Europe is likely to follow should BSkyB reach a deal. British regulatory authorities, including media watchdog Ofcom, and the government are particularly leery about concentration of ownership in the country's media sector, where Mr. Murdoch, controlling shareholder of both 21st Century Fox and News Corp, has long had a major presence through his investments in television and newspapers like the Times and the Sun.

A person familiar with the matter said that 21st Century Fox doesn't intend for any transaction to increase its stake in BSkyB beyond its current 39%. Ofcom declined to comment Monday.

To address possible conflicts of interest in the current deal negotiations, BSkyB said all board discussion of the issue is solely within a committee composed of its independent directors, which doesn't include directors affiliated with 21st Century Fox.

Some analysts were skeptical about the likelihood of the deal going through and the merits of it for BSkyB shareholders.

"[It] would be an expensive deal," said analysts at J.P. Morgan. "We don't see substantial synergies and it wouldn't enhance BSkyB's cash-flow capacity short-term," they said in a research note.

The enlarged pay-TV operator would achieve modest savings in product development and greater leverage in bidding for sports and movie rights, and have deep pockets for developing for original content, analysts at Credit Suisse said.

While the combined company would have promising growth in Germany, which has a relatively low level of pay-TV penetration, its subscriber base in Italy has shrunk since 2011.

The BSkyB approach to its German and Italian sister broadcasters follows a number of recent deals in the European broadcast-media sector. Liberty Global PLC, the cable operator majority-owned by U.S. media magnate John Malone, has made a EUR6.9 billion acquisition of Dutch cable operator Ziggo NV, subject to approval by the EU's competition regulator, which is investigating the deal. Liberty Global has snapped up a dozen cable operators in Europe in the past year. Earlier this month, the cable company and U.S. cable firm Discovery Communications Inc. teamed up to buy independent U.K. television producer All3Media for GBP550 million.

Viacom Inc., controlled by Sumner Redstone, announced in early May that it would acquire British broadcaster Channel 5 Broadcasting Ltd. for GBP450 million as the U.S. media company seeks to build its audience in the U.K.

Ian Walker, Amol Sharma and Nicholas Winning contributed to this article.

Write to Matthew Curtin at matthew.curtin@wsj.com and Caitlan Reeg at caitlan.reeg@wsj.com

(CORRECTION: 21st Century Fox said that "over the years we've had numerous internal discussions regarding the organizational and ownership structure of the European Sky-branded satellite platform. From time to time these conversations have included BSkyB." An earlier version of this article incorrectly attributed that statement to BSkyB.)

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